WASHINGTON The prospect of the U.S. Postal Service offering financial products such as remittances and consumer loans could be a boon for those underserved by traditional banks, Sen. Elizabeth Warren said over the weekend.
"This is an issue I am going to spend a lot of time working on and I hope my colleagues join me," Warren, a Massachusetts Democrat, said in an op-ed published on the Huffington Post Saturday. "We need innovative ways to create pathways for struggling families to build economic security, and this is an idea that falls in that category."
A report last week by the USPS's inspector general suggested the agency could earn almost $9 billion annually marketing financial services to roughly 68 million consumers not currently served by a mainstream bank. The proposal was instantly shot down by many in the industry who warned that the entrance of the cash-strapped Postal Service into banking could harm the financial system.
But Warren said the idea deserves consideration in light of the high costs facing underserved households from using payday lenders and check cashers.
"With post offices and postal workers already on the ground, USPS could partner with banks to make a critical difference for millions of Americans who don't have basic banking services because there are almost no banks or bank branches in their neighborhoods," Warren said.
The IG's white paper argued the Postal Service could partner with banking institutions to offer financial products. Under the proposal, borrowers could borrow up to half of their gross pay in a given period, and then make installment payments equal to their gross salary until the loan was repaid. Paychecks could be deposited onto prepaid cards, and loan repayments would automatically be repaid. A financial services model for the national mail carrier has been debated before, with bankers rejecting the approach, and already exists as a model in other countries.
Banking industry representatives said the Postal Service's recent track record in its core mail delivery systems should cast doubt on the plan. In an American Banker article, Cam Fine, head of the Independent Community Bankers of America, called it "the worst idea since the Ford Edsel."
But Warren, the former Harvard University law professor who designed the Consumer Financial Protection Bureau, said the report offers a potential solution for the expensive fees and interest paid by consumers that rely on high-cost lenders.
"Families rely on financial services more than ever, but those who need them most who struggle to make ends meet too often must contend with sky-high interest rates and tricks and traps buried in the fine print of their loan products," she said.
She noted there has been progress in focusing attention on expanding access, including work by the Federal Deposit Insurance Corp., as well as by University of Michigan professor and former Treasury Department official Michael Barr. The CFPB, meanwhile, is ensuring "that payday lenders are held accountable when they break the law," she said.
"There has been momentum in the right direction, but there is so much more work to do to make sure that families have access to affordable and fair financial services," Warren said.
"That is why the OIG report is so interesting. If the Postal Service offered basic banking services nothing fancy, just basic bill paying, check cashing and small dollar loans then it could provide affordable financial services for underserved families, and, at the same time, shore up its own financial footing."